Downtown Waxahachie, TX | Photo from city-data.com
Main Street seems to be on a lot of people’s minds. We are encouraged to “shop small” by American Express and the National Main Street Center on the Saturday after Thanksgiving in ads with fall foliage-lined streets. Political candidates evoke “Main Street” to show their support for small business ownership.
Last month I got to spend some time in Waxahachie, Texas at the Texas Downtown Development & Revitalization Conference where I had the chance to talk about the use of historic tax credits on America’s Main Streets. I shared my panel with Michael Scott, Assistant City Manager for Waxahachie, who discussed all of the other tools in the toolkit for Texas downtowns. While MHA has the opportunity to work on many large projects in world-class cities and rural communities across the country, it is important to talk about Main Streets and how the HTCs can help revitalize them.
Shortly before attending the conference, the Historic Tax Credit Improvement Act of 2015 (HTCIA) was filed in congress by Rep. Mike Kelly (R-PA) and Rep. Earl Blumenauer (D-OR). According to the National Trust for Historic Preservation, the legislation makes long overdue changes to the federal Historic Tax Credit to further encourage reuse and redevelopment in small, midsize and rural communities. They feel that main streets across America will have a stronger tool to help breathe new life into their historic buildings. This appears to be the case as the bill includes an increase of the credit from 20 to 30 percent for projects with rehabilitation expenses of less than $2.5 million. This would certainly help inject new private investment into smaller and more rural communities.
The bill includes other improvements such as simplifying the process for the transfer of historic tax credits to investors for projects under $2.5 million. If passed it would be the first major changes to the federal Historic Tax Credit since the 1986 tax bill and would have a large impact on smaller projects, whether they are on Main Street or a rural byway.
Main Street projects tend to be smaller in size and are often undertaken by an existing owner as opposed to a new developer. The tax credit syndication process, finding and bringing an investor into these smaller transactions, can be a difficult one as the legal and accounting costs for deals of this size can be the same as the costs for projects two to three times this size, resulting in less money for the project. The good news is that there are ways to mitigate some of these issues relative to scale. For instance, a local bank that is financing the project might be able to utilize the federal credit making the transaction much less cumbersome from an accounting and legal perspective. In some states, like Texas, the state tax credits can legally be transferred or sold making them real equity in the project. Transaction costs for state credits are minimal resulting in a greater net proceed for the project. And in some cases, the owners of the buildings may be able to utilize the federal credit themselves as they are a dollar-for-dollar reduction in federal income tax.
Main Street projects can benefit from the use of HTCs if the owner/developer is willing to be patient and put together the right project team. Local economic development organizations (like Main Street Programs) and state officials are knowledgeable about additional Main Street incentive programs that exist and how they can be used together to make a small-scale historic rehabilitation work.
And we know for certain that America benefits from our historic Main Streets. Main Streets are often some the most architecturally significant collection of buildings in a town. Even in small rural areas, people are returning to their historic commercial districts to shop or live. Historic tax credits are often an untapped tool for the rehabilitation of important resources but like most of our projects the rehabilitation of one has a catalytic impact to spur development of many and transform the Main Street landscape.